Dormant company or not?

Dormant company or not?

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I am looking for advice on whether of not a company is dormant.

The company has been dormant for a number of years, however it has significant losses, which via a tax election a I am looking at utilising to mitigate gains on the sale of shares.  The shares are owned by a group company and were in an unrelated company.

Due to being dormant the company has not been audited in recent years, however what I am looking to determine is whether or not the tax election will result in an audit being required due to the company no longer being dormant. 

I am aware the a company is dormant if it does not have any significant accounting transactions, but am unsure as to whether a tax election is classed as a significant accounting transaction or not?

Any help would be much appreciated.

Replies (14)

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By johngroganjga
20th Nov 2014 15:49

No a tax election is not an accounting transaction.  Which accounts in the company's books would you debit and credit, and with how much, if it was?

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By neilatkins
20th Nov 2014 15:56

Thank you for your reply. 

Thank you for your reply. 

I was of the same opinion but wanted to confirm this.  Do you have a section of the Companies Act or HMRC website page which confirms that a tax election does not result in the company becoming active?

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Replying to Accountant A:
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By HeavyMetalMike
20th Nov 2014 16:00

I'm sure someone could find the missing reference if they had a spare hour.
But do you have a reason why old (presumably trading ) losses can be used against current gains more importantly?

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Replying to Small accountant:
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By Portia Nina Levin
20th Nov 2014 16:28

If only there was a definition

HeavyMetalMike wrote:
presumably trading losses

I expect the tax election referred to is under TCGA 1992, section 171A, which would make your presumption incorrect.

All we need is a definition of significant accounting transaction and the mystery would be solved. http://www.legislation.gov.uk/ukpga/2006/46/section/1169?view=plain

EDIT: Crossed with taxguru, who clearly is not familiar with CA 2006, section 480.

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Replying to maxmillion:
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By User deleted
20th Nov 2014 16:33

Nonsense

Portia Nina Levin wrote:

EDIT: Crossed with taxguru, who clearly is not familiar with CA 2006, section 480.

Another piece of nonsense. How s.480 is relevant to the OP?

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By johngroganjga
20th Nov 2014 16:07

Why does it matter whether the company is dormant or not?

If it's the audit issue, why not ask the group auditors?  It's their decision at the end of the day isn't it?

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By User deleted
20th Nov 2014 16:25

A company is dormant during  any period in which it has no significant accounting transaction (s.1169 CA/06). A “significant accounting transaction” means a transaction that is required by section 386 to be entered in the company's accounting records. S.386 requires accounting records to disclose with reasonable accuracy, at any time, the financial position of the company. If, by virtue of this election, therefore, the position of the assets and liabilities of the company is affected then I would not consider the company to be dormant.

Edit: I have no clue what's the audit connection here!

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Replying to johngroganjga:
By johngroganjga
20th Nov 2014 17:10

Audit

taxguru wrote:

Edit: I have no clue what's the audit connection here!

The issue is that subsidiaries of holding companies that are not exempt from audit are themselves also not exempt from audit unless they are dormant.

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Replying to Richard Grant:
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By User deleted
20th Nov 2014 17:18

Great!

johngroganjga wrote:

The issue is that subsidiaries of holding companies that are not exempt from audit are themselves also not exempt from audit unless they are dormant.

Thank you for interpreting so much out of the OP! But we don't know the exact reason why an audit is required, even in the case of a subsidiary that's not dormant.

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Replying to Montrose:
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By Portia Nina Levin
20th Nov 2014 17:20

Great!

taxguru wrote:

Thank you for interpreting so much out of the OP! But we don't know the exact reason why an audit is required, even in the case of a subsidiary that's not dormant.

But people can go around boldly declaring things as irrelevant nonsense without the same information?

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Replying to Montrose:
By johngroganjga
20th Nov 2014 17:42

Audit

taxguru wrote:

But we don't know the exact reason why an audit is required, even in the case of a subsidiary that's not dormant.

Is it not likely to be the Companies Act?!

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By Stuart.thomson
20th Nov 2014 18:05

Contrarian view to taxguru
If the transaction you are talking about does not affect the assets of the company i do not think it is a transaction which affects the financial records of the company and it would remain dormant.

All the company is doing is utilising a contingent asset (carried forward loss) in a company which is otherwise unable to use it. I assume that this contingent asset is not recognised as a deferred asset. Yes? Also ensure there is no payment for the transfer. And then it will not affect the records of the company.

This is just an election for tax which is not affecting the assets of the company only its contingent assts which are not covered by this section of the CA.

Not sure if the audit reference is a red herring. It sounds like it.

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By User deleted
20th Nov 2014 20:46

Even if it does need an audit, if there are no transactions and the only issue is that there is a loss offset election - then a better question is what is the reason not to show the auditor the one (for want of a better phrase) 'transaction'?

 

Are you worried that the allocation of the losses may be questioned? After all, that's the only 'event' in the year.

 

What are the assets that the business holds? How much tax is at stake on the disposal? What is the likely audit fee? Are there other issues that might come out of an audit?

Then either do the election or don't.

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By SteveHa
26th Jul 2016 11:51

Well whaddya know. After all the debate, Vivian nailed it.

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